Mark Zuckerberg Unleashes His Animal Spirits -- Again

Following a challenging start to the week, U.S. stocks are recovering their composure, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average up 0.43% and 0.38%, respectively, as of 10:15 a.m. EDT Wednesday. In today's headlines, little more than a month after its $19 billion acquisition of messaging app WhatsApp, Facebook has just slapped down $2 billion for virtual reality specialist Oculus. Meanwhile, shares of King Digital Entertainment begin trading today after the mobile game developer offered them in the primary market for $22.50, for a $7 billion valuation.

Source: Sergey Galyonkin.

On Monday, I asked whether the momentum rally that has propelled certain segments of the tech sector to extraordinary heights had just stalled. But if investors are running out of enthusiasm (and that has yet to be demonstrated), then technology executives are showing that their animal spirits are alive and roaring.

Following the announcement of Disney's $500 million acquisition of online video content developer Maker Studios, Facebook disclosed yesterday that it is acquiring Oculus, which develops virtual reality technology for gaming. With this $2 billion acquisition, according to data from Thomson Reuters, the dollar value of global technology deals year to date has risen to $65.2 billion (with Facebook accounting for roughly one-third of that total) -- the highest level at this point in the year since the height of the technology bubble in 2000.

The Oculus acquisition isn't about gaming, however -- Facebook CEO Mark Zuckerberg is dreaming big here (it would be a pity not to be optimistic, even a bit exuberant, when you have a net worth of $29 billion at age 29.). On a conference call with investors and analysts yesterday, Zuckerberg was effusive in his assessment of the acquisition's potential, saying virtual reality could replace mobile as the next major computing platform, and that Oculus could be "the most social platform ever."

Acquiring Oculus on that basis looks like a high concept/low probability bet. Virtual reality could be the next major platform, but no one, including Mark Zuckerberg, really knows if that potential will materialize. In the meantime, Facebook's autocratic governance structure ensures that the CEO is free to make multibillion-dollar experimental bets. If you're a shareholder, perhaps it's just a matter of keeping the faith -- he's led you this far, after all.

And speaking of long odds bets, what is the probability that King Digital Entertainment will produce another hit to replace its blockbuster Candy Crush Saga -- which represents the bulk of its revenue? That's the bet you're making if you buy the shares now -- not an attractive proposition, in my opinion.